About 40 percent of Russia’s reserves are held in two sovereign wealth funds that are controlled by the Finance Ministry. The government is looking for ways to tap these funds to help cash-strapped enterprises while maintaining as much international currency as possible. Russian companies have about $50 billion in non-ruble bonds and loans due by the end of 2015, according to data compiled by Bloomberg.

One option is to convert some of the $80 billion Wellbeing Fund, which was designed to safeguard the pension system, into rubles to provide emergency loans to select companies.

The Finance Ministry has already said it will use the other sovereign fund, the $89 billion Reserve Fund to cover at least half a projected 1 trillion-ruble budget shortfall next year.

Yeah, I don't think any of that money is actually there anymore. You'll find it in numbered Swiss bank accounts and London real estate.

1. I wonder whether anyone would want to spend their late-December workdays putting new shorts on the ruble, MICEX and oil. So whatever the balance is right now, I can't see why it should get worse barring new developments.

2. Without intentional selling down, the US markets would drift up over the next 2 weeks, no?

3. But at the same time, I'd not be surprised if everyone kept their downside puts over the holidays, and so $VIX might not drift down much at all.

So the oil move might be done, HYG might normalize around $88-$90 as excitement abates, US markets might drift up but I might not get as much of a win shorting $VIX as I would buying a straight equity ETF.

He thinks things will be better in 2016 and 2017, despite not believing any of that China & India hype.

By the way, 70% of all the copper that's ever been mined is still "out there" too. If you're worried about people's gold holdings working their way back into the market, then maybe you should follow the scrap numbers.

So the Russian Rouble Rallies and the Dow futures pop and all is right with the world. Which begs the question for those of you who've been gloating at the Russia market collapse...

Uh-oh. He's talking to me.

Do you seriously want Russia to have internal problems? Seriously?

...because if you do you know fuck all about history. It stands to reason that the world need a stable (or relatively so) Russia for its own greater and wider general stability.

Really? "It stands to reason" is a bald assertion, not an argument.

Do I know anything about history? I do know that the last time Russia was economically crippled by low oil prices and mired in a war that had no plausible endgame, communism collapsed and hundreds of millions of people in eastern Europe were freed from slavery.

About the only bad thing that came out of this, that I can think of right now, was the Yugoslav civil wars. Those were bad, sure, but I'd assert they have to be measured against the reunification of Germany and the freedom of the Czechs and Poles and the Baltic states.

Oh and also against the end of Ceaucescu, Hoxha, the Stasi and so on.

OK, I've been told it also made things worse in Central Asia as Kazakhs, Uzbeks etc. "threw off the yoke of Russian/Ukrainian colonialism" and promptly drove their countries into the shithole. I guess that's also bad, though the Kazakhs, Uzbeks etc. didn't seem to mind.

This time, instead of communists, Russia is run by a mafia and the KGB old guard. And yes, I'd like to see their kleptocratic empire of murderers and Nazi clowns collapse. Maybe there's enough left of the intellectual elite and parties like Yabloko to guide Russia out of this and make it a better country.

I can understand, though, the desire to appease and coddle Russia, thus making life unbearable for the people in Lithuania and Estonia and Poland and so on who are all going to have to go to sleep every night wondering if they're next in line for reabsorption into "Greater Russia".

OK, that's it. I'm starting to come up with interesting essay topics in economics every day now, so I've got to go to university and get my degree.

I had an interesting brainwave just now.

There's one chapter in Freakonomics where they study the salary structure available in street crack dealing, and find that it closely mirrors the salary structure in minimum-wage low-skilled fields like working in fast food. Not exactly, but fairly closely. The street dealer is paid crap, the "local manager" makes more but still crap, and only the "C-levels" at the top make the real money.

It seems obvious when you think about it - if crack dealing paid more, then people would quit fast food jobs to go deal crack, and thus wages in the fast food industry would have to go up so they could successfully compete for labour.

So what do you think would happen if the USA would increase its minimum wage to $10/hr?

Something interesting would happen, at least according to Economics 101:

1. Labour (in the aggregate, and over time, smartass) would leave crack dealing to work at safer, legal jobs. The crack dealing "industry" would need to "raise wages" if it wanted to still sell enough to meet demand.

2. But that would mean more money in the crack "industry" would go to labour, and thus the per-unit price of goods would increase, which would (in the aggregate, and over time, smartass) reduce demand.

So increasing the minimum wage would reduce profitability and demand for drugs, and get more young kids out of drug-dealing and into safe, legal, tax paying jobs.

And that would increase government revenue, and also decrease policing expenses.

Then again, that gap-up might only be there because the drop had been entirely driven by shorting, and now the shorts are covering.

I really feel a lot of the last few weeks' moves were driven by shorting - short ruble, short MICEX, short junk, and (maybe by extension) shorting of things like the R2K. They were all supposed to be slam-dunk trades, so everyone should have waded in.

The first clue this was true came on Tuesday, when a report that ruble trading would be suspended drove a rumour that Russia was going to enact currency controls. Suddenly there was a bounce not only in the ruble, but in the MICEX and oil and HYG.

The possibility there was that these short plays had become ubiquitous fads, and the threat of nonconvertibility complicating everything drove people out. Like someone smart in a blog that I linked to said a few days ago, the market's tendency is to go where it thinks everyone else is going - and once you think people are leaving the boat, you want to clear off and not be left the greatest fool holding the bag.

Then on Wednesday there was more covering, so it seemed. It felt like some people didn't want to hold these short positions when the Fed statement came out. Seems the market always clears out and goes quiet before these things. HYG had bounced back and oil had bounced back, in advance of the Fed statement.

There was also a story on the wire about Russia taking strong further moves to deal with the currency crisis, which also could have driven people out of their ruble and MICEX shorts. The central bank actions might have succeeded, y'know, or at least the idiots at the hedge funds who know nothing about economics might have been scared that they would have succeeded.

And there was apparently some data about US oil stockpiles that maybe made people reconsider the possible remaining downside in oil. Hard to screw up the courage to short oil when you don't know if it can fall to $20 or just to $50 - and I'd think you won't short it if you've already made money in the drop from $90 to $55. You'll probably take your money and run, right? Let the fools chase the last 10-20%.

Then Janet Yellen came out for the presser and changed the tenor of the discussion by presenting her perfectly intelligent opinions about what oil and Russia actually meant.

Once you break the back of a one-way trade by forcing some people out, I don't think it can get moving again - at least not without new information that the market participants all will interpret as telling everyone else to get back in.

So I think most people in these trades began to fear that other people were beginning to fear that everyone would get scared that everyone else was about to bail out. Sorry about that sentence, but like the really smart guy on that blog said a few days ago, it's what market participants expect from their neighbours that matters.

So we'll have to see if yesterday's and today's pop in US equities can be sold into or not.

And the problem I have is, going by that HYG chart above, the high yield trade does indeed have room to get sold into: wasn't Whitey saying just yesterday that all these indebted junior oils are about to go bankrupt and default on their debts? Has that been fixed? Doesn't HYG have to move lower to improve its yield to take this new threat into account?

Anyway, as Steenbarger says, we'll need people willing to hit the ask at these prices for the market to move up.

So, let’s say the negative impact from low oil is $150 billion and the positive impact is $450 billion. Our simple model suggests that the net positive impact equals about $300 billion. That is more than double the entire 2% payroll tax cut of a few years ago. It is bigger than the tax-cut amount debated this year in dysfunctional Washington DC. And it is about three-fourths the size of the revised federal deficit estimate for the fiscal year ending in 2015. That estimate is trending toward $400 billion.

If we are close to right, and if these estimates are within a 20% to 30% margin of error, 2015 will deliver accelerating growth in the US. We will enjoy continuing low interest rates as the Fed gradually normalizes policy. Low inflation lends additional confidence to the forecast, because energy price pressures are removed. The US stock market is likely to reflect these trends.

A funny thing happened on the way to Vladimir Putin running strategic laps around the West. Russia's economy imploded.

and ends with

Putin might be playing chess while we play checkers, but only if we lend him the money for the set.

And there's nothing Pooty-poot can do about it. Sorry Pooty! You're the past. We're the future. Good luck building a new North Korea for yourself and your mafia cronies. Hope you don't starve 144 million people to death. We in the west will happily take your young and attractive women, so at least they have hope.

BBC - US moves to normalize relations with Cuba. Considering the Americans have been staunch allies of genocidal murderers like Charles Taylor and Augusto Pinochet, their stance against Cuba and the relatively harmless Castro family has never made any sense. Well... except for the bit about the US government having been under the control of the American mafia and the white exile Cuban slave-owners who lost everything in the revolution.

Qz, the Middle Persian word for a joke that destroys the flow of a comedy program - Buttcoin was the worst investment of 2014. Worse than Russia, worse than gold miners. Oh and by the way, as of today the score is:

ten shares of AAPL: $1094.10
three butt-coins: $978.24
one ounce of gold: $1189.30

And those of you who doubted that the holy and constant, annointed and timeless value of gold would be worth more than either by the end of the year? Shame on you. I voted gold. Three times. What did you vote for? Huh? Huh? Not gold, eh?

Y'know, I do like Jim Rogers, Hot Commodities was a good book, he does have his own commodity index and you & I don't, but boy has that guy been taken to the woodshed and beaten like a red-headed stepchild.

Where he notes that he was invested, among other things, in the Micex via "an ETF".

Gee, I hope it's not this one:

So hey, I still like the guy, he's educated me a lot about commodities and I do respect his experience.

But boy he really looked like a fool on this one. And reading Putin's Kleptocracy* has made me aware of how fucking clueless Jim was about the political/economic situation on the ground.

Even if you like someone, remember that they are very likely to screw up big-time.

* - Putin's Kleptocracy reads like an indictment. By that, I mean it's just a long footnoted list of associations and events with no narrative structure. I appreciate the book being written, but it's not worth buying to read unless you happen to work for Interpol.

Which, by the way, makes it very clear to me in the first few pages that by simply Googling the book and then posting about it on a Google blog, I've certainly now made it onto an NSA watchlist and am now being watched for my every internet move, if I hadn't already been for my teenage activities.

Speaking of which, I have a very original reason for being annoyed at Obama's and Bush's "collect it all" dystopian fascist dragnet of surveillance on Americans and all other foreign nationals with access to the internet.

Back in the old days, I had to commit crimes, go to anti-nuke demonstrations, associate with known drug dealers, date a skinhead girlfriend, hang out with Greenpeace members wanted by the law in other countries, and run a popular Unabomber news website just to maybe get the RCMP to open a file on me.

Nowadays all a guy's gotta do is start a stupid fucking blog.

Anyway, you should all read Greenwald's No Place to Hide, and in fact you should also buy a few extra copies to give to your local public library. Every single person in the free world needs to read about how you've all now been turned into nothing but fucking livestock.

High yield has barfed, as hedge fund bozos with exposure thru the ETFs have no choice but to dump the entire market despite junior shale companies being the only junk in the system. Good gets dragged down with the bad.

Now, the ruble may still continue to barf, and oil may still continue to barf; the ruble is fundamentally worth nothing, and oil is fundamentally worth $35-$40 a barrel.

However, I found it interesting that yesterday's Zerohedge rumour of imminent Russian capital controls seemed to be enough to scare out the Micex shorts and get some oil & HY shorts to cover. This suggested to me that maybe the recent fast moves were overdone, and the short market has to clear out its overexuberance before any declines can continue. The drops were just too damn fast and too damn silly, I think.

As well, the apparently-now-fixed Vix hairiness might have been scaring people. And on top of that, the presence of a heavy pile of Vix 20 calls on expiry yesterday (so I read on a blog somewhere) might have been scaring the market. Today brings the Vix a new front month.

Tuesday, December 16, 2014

Inputs to the calculation are going skewy on the VIX in the past couple days because "safety parameters are set to hair triggers" and market makers are going wide more often than not, Group One Trading’s Dominic Salvino said.

But, wonder of wonders, I googled the supposed "Bloomberg report" and found utterly nothing.

The issue, according to the CBOE, derived from the way the VIX equation collects options quotes. The CBOE takes the bid and ask price of every option (that is, the price at which market makers are willing to buy and sell each option) and finds the average. For instance, if the bid price is 10 cents, and the ask price is 30 cents, the "true" options price will be considered to be 20 cents.

However, what began to happen is that the bid/ask spreads on those S&P options started to widen vociferously and sporadically. Generally, the ask price (the price at which the market maker offers to sell that option to traders) was rising, while the bid price (the price at which the market maker is willing to buy the option) stayed the same.

But of course CNBC is nothing but Zionist American propaganda while Zerohedge gets all its news (and reputation) (and funding) from RT and the Russians.

You choose what's true! Because truth is something you can decide for yourself without bothering to check reality!

There are many newsletter writers out there who prove their ignorance every day by saying the stupidest, most paleolithic things. Bullshit about the evil Ben Bernanke, ignorant garbage about debt and government spending, uninformed blather about money-printing and QE, vacuous whining about how granny doesn't get any interest on her deposits anymore.

If you've been reading this blerg for a while, you know some of the names I'd read off if I felt like it.

However, instead I'm going to provide them all an opportunity.

Here are three lectures from UC Berkeley's intro to Economics course that'll explain the basics of macroeconomics for you, well enough that (if you're open to actually learning) you'll finally realize just how wrong it was to think you were learning anything at all from US talk radio and the Republican party.

All it will take is a computer with speakers, an internet connection, and approx. 110 minutes of your time.

Anybody who thought there wouldn't be much tax-loss selling in Canadian stocks this season, that the worst would be over early and that December wouldn't see much dumpage should take a good look at the market action today.

Today, CIBC World Markets added its voice, in a new report on just how painful the shock could be to Canada.

“The recent dive in crude oil prices is an unprecedented development for the Canadian economy,” said CIBC economists Avery Shenfeld, Peter Buchanan and Warren Lovely.

“Even after allowing for the cushions provided by tighter heavy oil spreads and a weaker C$, the local currency value of a weighted index of Canadian barrels is down over 40 per cent in the last four months,” they added.

“That’s unprecedented since, while we’ve seen retreats of that magnitude before, the recent ones were demand-led corrections in which broader U.S. or global recessions did much of the economic damage to Canada.”

However, we're forgetting that there isn't any oil in Ontario, Quebec or BC, and those are the important provinces in Canada:

The provinces of Alberta, Saskatchewan and Newfoundland and Labrador are in the eye of this storm, as is the federal government, when it comes to revenues.

Provinces such as Ontario and Quebec, of course, will get something of a boost from lower energy costs and a weaker dollar.

The upshot?

Frankly, I think this spells imminent regime change in Canada. How can Harper continue to promote Albertan politics when Alberta falls into recession? His power base will be gone, and I doubt he'll be able to muster enough strength in rural Ontario anymore once they have nothing left to whine about.

Finally the east rises again, and finally we send fascist Albertan politics back to where it came from.

Dunno if The Prince will be a good PM, but at least he's not a fascist pig.

Monday, December 15, 2014

McAfee has come to America to fight the good war against Statist oppression! Valiantly he lives off the grid, keeping himself a moving target, as he endeavours to single-handedly destroy the forces of oppression!

And where is Jeff Berwick? Cowering in his little Acapulco condo sipping wine, is where.

Bespoke - the entire world is now oversold. BTW, Shaoul thinks the oil price drop has engendered fears of major dislocations across asset classes - like EM currency crises, or maybe junk debt collapse. Not that these will happen, just that these are what Wall Street Whitey is worrying about now.

Imagine that the decline in oil and its probable effects could have been predicted in mid-June. You are given a choice between keeping the status quo price back then (nearly $110 for WTI) or accepting what came next. You survey the landscape of affected parties in the US should you choose the latter.

On the one hand, the outlook for capex and employment in the energy sector weakens, though neither is large relative to the US economy. High yield energy bonds experience an unnerving shakeout, raising fears that the damage to credit markets will spread beyond the sector, and the vulnerability of some financial institutions to the energy sector is exposed. The S&P 500 fluctuates more throughout this period than it did earlier in the year. The petroleum trade deficit, which had been narrowing quickly in recent years, at some point might begin shrinking at a slower pace than previously expected.

On the other hand, you see that the decline in energy prices also represents the equivalent of a big real wage gain (or a tax cut, whatever) for the middle class. Estimates vary by economist, but the benefits for the average household are in the hundreds of the dollars, with the total gains somewhere north of $100bn. The compensating benefits to the non-energy economic sectors should mitigate the threat to wider financial instability. While the short-term disinflationary pressures of a lower oil price surely complicates the Fed’s job, in the medium term the effect should be helpfully inflationary.

Furthermore, this boost starts arriving after an extended period of stagnant nominal wage growth and falling real median incomes. It also arrives in the summer months when gains in the US labour market had appeared to be slowing, and a little before the IMF would downgrade the near-term growth prospects for the world.

Surely nobody with any sense would refuse such a deal, or even hesitate to accept it. The only exceptions would be oil producers and investors in certain risky debt instruments.

Now also try to imagine that the exact reverse scenario had followed. Rather than falling by about 40 per cent, oil instead climbs by the same amount. The pessimism would have been extraordinary: Runaway headline inflation! Devastation for the middle class! Strengthened geopolitical foes! The outcry following a negative supply-side oil shock would have been dramatically more intense than the relatively subdued optimism following the positive shock that has actually ensued.

In the bleakest official forecast yet from Moscow, the Russian central bank warned that the country could see a 4.5 per cent to 4.7 per cent contraction in GDP next year if oil prices remained at $60 a barrel.

The fundamental failure in the West's calculus is the assumption that this would weaken Pooty. Au contraire, the only Russians left in Russia are livestock who love living in a crypto-Stalinist mafia state, and Pooty's only concern is that he and his mafia friends can continue to rob the country blind to the tune of its entire GDP every year.

Has there been another massive earthquake in Japan, or some other similar reason to puke the ETF by more than 2% at a time outside Japanese trading hours when dropping oil prices are going to give their economy a boost and Abe has just won re-election?

And

What, is Ford suddenly worth over 10% less than it was two weeks ago because, um, reasons?

will be the story of today. $VIX has skyrocketed and even the vix blogs don't seem to have a good explanation why; there are even crazy-high $VIX calls freaking people out.

Meanwhile, in premarket at least, both GDX and GDXJ are threatening new lows, which makes me want to tell you that even if gold remains strong, you probably don't want to take a new position in a beaten-down miner today, no matter how good a deal you think you can get. If the market wants to sell, you let it sell til it's done.

Sunday, December 14, 2014

With one exception, the significant negatives mainly tell s story of global weakness - a flight to treasury bonds vs. corporate bonds, shipping, and commodities. US data, with the sole exception of Gallup daily spending, continues to tell a story of strength.

Like investors, economists have been thrown into confusion. Almost no-one in the profession (including myself) predicted the oil price collapse in advance. After the shock, it took months for oil price forecasts to be brought into line with the new reality. Futures prices in the oil market have performed no better: predicting oil prices can be a mug’s game.

More surprisingly, there has also been a disinclination to accept the potential benefits in the oil shock. Some economists have said it largely reflects an adverse demand shock in the global economy, so it is axiomatically bad news. Others have said that, even if it is a supply shock in the oil market, which would normally be beneficial, this time will be different, because it will be deflationary, and will therefore raise real interest rates.

How the hell could any economist say it "reflects an adverse demand shock"? Is this in the actual demand data that you can (order your grad student to) look up? Or are you really just saying "prices down proves demand must be down"? Is there really nothing else that affects prices?

Then again, this kind of ignorance should be expected from a "science" that can't even make advance predictions on oil prices.